185 F.3d 154 (3rd Cir.

1999)

ARMSTRONG SURGICAL CENTER, INC., Appellant,

v.
ARMSTRONG COUNTY MEMORIAL HOSPITAL;
ROGELIO BORJA; RICHARD BOSCO; ZAFAR
CHOWDHRY; JEFFREY DAVID; FRANK DAVIE; EGBERT
DEVRIES; PAUL L. FREDERICK; JOHN GARROTT;
FRANK N. GENOVESE; IRVING KLEIN; DAVID H. KOHL;
LEE H. KOSTER; JOHN MARTY; MICHAEL P. ONDICH;
KARL R. SALTRICK; WILLIS SHOOK; ANTHONY
SMALDINO; PETER SOTOS; JAE T. YANG
No. 97-3440

UNITED STATES COURT OF APPEALS FOR THE THIRD

CIRCUIT
Argued April 23, 1998
Decided July 27, 1999

On Appeal From The United States District Court For The Western
District Of Pennsylvania (D.C. Civil No. 96-01384) District Judge:
Honorable Gustave DiamondJohn L. Laubach, Jr., John P. Klee, Laubach
& Fulton, 104 Broadway Avenue, Carnegie, PA 15106-2421
James G. Park (Argued), 374 Midway Road, Pittsburgh, PA 15216,
Attorneys for Appellant
Alan A. Garfinkel, Klett, Lieber, Rooney & Schorling, One Oxford
Centre, 40th Floor, Pittsburgh, PA 15219-6498
Jules S. Henshell (Argued), Klett, Lieber, Rooney & Schorling, 240 North
Third Street, Suite 600, Harrisburg, PA 17101, Attorneys for Appellee
Armstrong County Memorial Hospital
Wendelynne J. Newton (Argued), Sheila S. DiNardo, Buchanan Ingersoll
Professional Corporation, One Oxford Centre, 20th Floor, 301 Grant
Street, Pittsburgh, PA 15219-1410, Attorneys for Appellees Rogelio
Borja, Richard Bosco, Zafar Chowdhry, Jeffrey David, Frank Davie,

Egbert Devries, Paul L. Frederick; John Garrott, Frank N. Genovese,

Irving Klein, David H. Kohl, Lee H. Koster, John Marty, Michael P.
Ondich, Karl R. Saltrick, Willis Shook, Anthony Smaldino, Peter Sotos
and Jae T. Yang
BEFORE: NYGAARD and STAPLETON, Circuit Judges and
SCHWARTZ,* District Judge.
OPINION OF THE COURT
STAPLETON, Circuit Judge:

Appellant Armstrong Surgical Center, Inc. (the "Surgical Center") contends that
Armstrong County Memorial Hospital and nineteen of its staff physicians (the
"Hospital Defendants") conspired to prevent it from establishing an ambulatory
surgery center, thereby restraining and monopolizing trade in violation of
sections 1 and 2 of the Sherman Act. The District Court dismissed the
complaint after concluding that the alleged conduct was immune from antitrust
scrutiny. We will affirm.
I.

We review the District Court's order dismissing the Surgical Center's complaint
de novo. See Jeremy H. v. Mount Lebanon Sch. Dist., 95 F.3d 272, 277 (3d Cir.
1996). In reviewing that order, we employ the same standard the District Court
used, accepting as true all factual allegations contained in the complaint and all
reasonable inferences that can be drawn therefrom. See Schuylkill Energy
Resources, Inc. v. Pennsylvania Power & Light Co. , 113 F.3d 405, 411 n.2 (3d
Cir.), cert. denied, 118 S. Ct. 435 (1997).
II.

The Surgical Center has plans to build a free-standing ambulatory surgery

center in the city of Kittanning, Armstrong County, Pennsylvania. If
constructed, that facility would provide outpatient surgical services, including
both general surgery and various specialities. Currently, the Hospital is the only
facility with operating rooms in Armstrong County, and the nineteen staff
physician defendants perform the vast majority of surgeries in the county. Only
one independent ambulatory surgery center operates in the four counties that
border Armstrong County, and this center is approximately fifty miles from the
Surgical Center's proposed site. If constructed, the Surgical Center's facility

would compete directly with the Hospital and its staff physicians in the
outpatient surgery market. Moreover, the Surgical Center alleges that it would
offer outpatient surgical services at prices significantly lower than the
Hospital's.
4

Under the Pennsylvania Health Care Facilities Act, anyone proposing to

establish a new health care facility must first obtain a Certificate of Need
("CON") from Pennsylvania's Department of Health. See Pa. Stat. Ann. tit. 35,
S 448.701(a)(2). The Act seeks to ensure "the orderly and economical
distribution of health care resources to prevent needless duplication of
services." Id. at S 448.102. The Department individually reviews CON
applications in an extensive proceeding consisting of an investigation, an
evaluation of submitted materials, and a public hearing. During this review, the
Department considers various health planning issues, including the adequacy of
existing health care providers and the need for additional services or facilities.
See id. S 448.707. Interested parties, including health care providers who
supply similar services in the area, may petition for public meetings or hearings
and submit information to the Department on any CON application. See id. SS
448.103, 448.704(b).

In March of 1991, the Surgical Center filed an application for a CON with the
Department as required. Thereafter, according to the Surgical Center's
complaint, the Hospital defendants, including fourteen physicians who
originally supported the Surgical Center's project, entered into a conspiracy to
subvert establishment of the new facility. The alleged conspiracy involved: (1)
the physicians announcing that they would boycott the proposed outpatient
center and (2) the Hospital defendants submitting false and misleading
information to the Department. Specifically, the Surgical Center alleges that the
Hospital defendants informed the Department that its nineteen physicians
would not use the Surgical Center facility in the hope that this information
would convince the Department that the proposed facility could not meet the
statutory requirements for a CON. In addition, the Surgical Center claims that
the Hospital defendants sought to mislead the Department into believing that
the Hospital intended to open its own outpatient center, which was then under
construction, and that this facility would satisfy all of Armstrong County's
outpatient surgery needs. The Hospital's partially constructed facility was
designed to provide alternative space for outpatient surgeries then conducted in
three of the Hospital's six mixed-use operating rooms. According to the
Surgical Center, however, the Hospital defendants knew that the construction
of the Hospital's facility had been stopped with only the shell of the building
completed and that the Hospital had made no commitment to resume
construction. Despite this knowledge, it is alleged that the Hospital defendants

falsely represented to the Department that its new center was either in use or
very near completion.
6

The Department denied the Surgical Center's CON application. The Surgical
Center appealed that decision to the Commonwealth of Pennsylvania State
Health Facility Hearing Board, which conducted its own hearing and received
additional evidence.1 The Board affirmed the Department's decision after
finding that (1) the Surgical Center's facility would result in needless
duplication of existing facilities and health care services, and (2) the Surgical
Center would not be economically viable because the nineteen Hospital
surgeons who performed ninety percent of Armstrong County's surgeries would
not use the Surgical Center facility. According to the Board, "the most
damaging evidence [against the Surgical Center's application] is that the
number of physicians who might have been expected to support the facility
decreased significantly after the Applicant had submitted its projections." The
Surgical Center appealed the Board's decision to the Commonwealth Court of
Pennsylvania, which affirmed the Board's decision.

The Surgical Center filed this antitrust action seeking treble damages for, inter
alia, denial of the CON, lost value of the CON and the proposed outpatient
center, and lost profits. It contends that the Hospital defendants' conspiracy
caused the Department to deny its CON application. The District Court
dismissed the Surgical Center's suit for failure to state a claim upon which
relief may be granted, see Fed. R. Civ. P. 12(b)(6), holding that the Hospital
defendants' conduct was immune from antitrust scrutiny.
III.

We begin by considering the Surgical Center's claim that the Hospital

defendants conspired to boycott its outpatient center, thereby violating sections
1 and 2 of the Sherman Act. To state a claim under section 1, a plaintiff must
allege "a contract, combination or conspiracy; a restraint of trade; and an effect
on interstate commerce." Fuentes v. South Hills Cardiology, 946 F.2d 196, 201
(3d Cir. 1991). Section 2 of the Sherman Act prohibits both monopolies and
attempts to monopolize. See 15 U.S.C. S 2. A claim under section 2 must allege
"(1) that the defendant has engaged in predatory or anticompetitive conduct
with (2) a specific intent to monopolize and (3) a dangerous probability of
achieving monopoly power." Spectrum Sports, Inc. v. McQuillan, 506 U.S.
447, 456, 113 S. Ct. 884, 890-91 (1993); see also Schuylkill Energy Resources,
113 F.3d at 413.

"A classic boycott involves concerted action with a purpose either to exclude a

"A classic boycott involves concerted action with a purpose either to exclude a
person or group from the market, or to accomplish some other anticompetitive
object, or both." Fuentes, 946 F.2d at 202 (internal quotes omitted); see also St.
Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 541, 98 S. Ct. 2923, 292930 (1978). Such commercially motivated group boycotts, or concerted refusals
to deal, generally are considered illegal per se under section 1. See F.T.C. v.
Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 431-32, 110 S. Ct. 768, 77980 (1990); Weiss v. York Hospital, 745 F.2d 786, 818 (3d Cir. 1984). When a
boycott's aim is to monopolize trade, it might also violate section 2. See Retina
Associates v. Southern Baptist Hosp. of Fla., Inc., 105 F.3d 1376, 1384 (11th
Cir. 1997).

10

The Hospital defendants do not deny that the complaint alleges a threat of a
boycott that might under other circumstances constitute an antitrust violation.
They insist, however, that the complaint alleges facts establishing that they are
immune from antitrust liability. Specifically, they contend that their activities
are insulated from antitrust scrutiny because their allegedly wrongful conduct
occurred in the context of supplying information to the Pennsylvania
Department of Health during the Surgical Center's CON application process
and because the injuries alleged resulted solely from the Department's denial of
the CON.

11

In Parker v. Brown, 317 U.S. 341 (1943), an agricultural producer challenged a

marketing program adopted by California's Director of Agriculture as invalid
under the Sherman Act. The program served to restrict competition among
growers and maintain prices in commodity distribution. "Relying on principles
of federalism and state sovereignty, [the Supreme Court] held that the Sherman
Act did not apply to anticompetitive restraints imposed by the States `as an act
of government.' " City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365
(1991).

12

In Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
127 (1961), and United Mine Workers v. Pennington, 381 U.S. 657 (1965), the
Supreme Court held that antitrust liability cannot be predicated solely on
petitioning to secure government action even where those efforts are intended
to eliminate competition. As the Court explained in Noerr, "[t]he right of the
people to inform their representatives in government of their desires with
respect to the passage or enforcement of laws cannot properly be made to
depend on their interest in doing so." Noerr, 365 U.S. at 139.

13

The Parker doctrine and the Noerr-Pennington doctrine have been interpreted as
complementing each other to protect the two related but distinct principles upon

which they are founded. As the Supreme Court has more recently observed:
14

Parker and Noerr are complementary expressions of the principle that the
antitrust laws regulate business, not politics; the former decision protects the
States' acts of governing, and the latter the citizens' participation in
government.

15

Omni, 499 U.S. at 383.

16

As the Surgical Center emphasizes, however, the immunity afforded to a

private party under Noerr is not unlimited. Where the challenged private
conduct is only "sham" petitioning -- i.e., where it "is not genuinely aimed at
procuring favorable government action as opposed to a valid effort to influence
government action"-- Noerr immunity is not available. Professional Real Estate
Investors, Inc. v. Columbia Pictures, Inc. 508 U.S. 49 (1993) ("PRE"). In
essence, sham petitioning entails "the use of the governmental process -- as
opposed to the outcome of that process -- as an anticompetitive weapon." PRE,
508 U.S. at 61 (emphasis added). Accordingly, the sham petitioning exception
does not apply in a case like the one before us where the plaintiff has not
alleged that the petitioning conduct was for any purpose other than obtaining
favorable government action.2

17

It is also true that a private party can be held liable even for bona-fide
petitioning conduct where that conduct has caused direct antitrust injury in the
market place. F.T.C. v. Superior Court Trial Lawyers Ass'n., 493 U.S. 411
(1990). In Trial Lawyers, for example, the public defenders of the District of
Columbia engaged in a concerted refusal to represent indigent defendants in
order to pressure the District into raising the hourly rate paid. The Court held
that the defendants could be held liable under the Sherman Act for injuries that
resulted directly from the boycott, even though the boycott was intended to
secure government action.

18

The limitation on Noerr immunity recognized in Trial Lawyers is inapplicable,

however, to a case where the sole antitrust injury is caused directly by the
government action that the private defendant has helped to secure. Thus, even
where the same petitioning conduct might give rise to antitrust liability for
injury directly caused to a competitor in the marketplace, if relief is sought
solely for injury as to which the state would enjoy immunity under Parker, the
private petitioner also enjoys immunity. As the Supreme Court explained in
Allied Tube & Conduit Corp. v. Indian Head, Inc.:

19

Concerted efforts to restrain or monopolize trade by petitioning government

officials are protected from antitrust liability under the doctrine established by
[Noerr; Pennington, and California Motor Transport Co. v. Trucking
Unlimited]. The scope of this protection depends, however, on the source,
context, and nature of the anticompetitive restraint at issue. "[W]here a restraint
upon trade or monopolization is the result of valid governmental action, as
opposed to private action," those urging the governmental action enjoy absolute
immunity from antitrust liability for the anticompetitive restraint.

20

486 U.S. 492, 499 (1987) (citations omitted) (quoting Noerr, 365 U.S. at 136).

21

We applied this principle in Mass. School of Law at Andover, Inc. v. American

Bar Assoc., 107 F.3d 1026 (1997) ("MSL"). There, the plaintiff, an
unaccredited law school, complained of injuries resulting from the fact that,
without ABA accreditation, the school's graduates were refused admittance to
most states' bar examinations. We identified the critical issue as "whether state
or private conduct caused the injury MSL alleges it suffered." Id. at 1035.
Looking to the source of the restraint-causing injury, we found that because
"every state retains the final authority to set all the bar admission rules," any
injury the plaintiff suffered "is the result of state action and thus immune." Id.
at 1035-36.

22

This reasoning was similarly applied in Sandy River Nursing Care v. Aetna
Casualty, 985 F.2d 1138, 1147 (1st Cir. 1993), where the defendant insurers
allegedly employed a boycott in an effort to force the legislature to enact
legislation permitting rate increases. Because all the plaintiff 's claimed injuries
were associated with increased rates charged by the defendants after the
legislature removed the rate limits, the court concluded that "[plaintiff's
injuries] must be viewed as a product of state action" and that the defendants
were, accordingly, immune from liability.

23

Here, looking to the source of the complained of injuries, we find that all of the
Surgical Center's alleged injuries arise solely from the denial of the CON: the
denial of the ability to operate the proposed facility; the loss of the CON's
value, the value of the facility, and the value of the operation's proceeds; the
delay in securing the CON; and "other related losses." Each of the injuries the
plaintiff claims is a direct result of the Department's decision to deny the
plaintiff's application for a CON.3

24

In sum, where, as here, all of the plaintiff 's alleged injuries result from state
action, antitrust liability cannot be imposed on a private party who induced the

state action by means of concerted anticompetitive activity. It follows that the

complaint fails to state a boycott claim upon which relief can be granted. See
Noerr, 365 U.S. at 136; Parker, 317 U.S. at 352.
IV.
25

The Surgical Center's second claim is that the Hospital defendants, as a part of
their conspiracy, misled the Department, the Board, and the Commonwealth
Court into believing that the Hospital's partially constructed facility would soon
open and meet the needs of the relevant market when the Hospital defendants
knew that the facility would not be completed. The resulting injury, it is said,
was the denial of the Surgical Center's application for a CON. The Center
would have us deny antitrust immunity to the Hospital defendants on the
grounds that they successfully opposed the issuance of a CON using
information known to be false.

26

Although the Supreme Court suggested in California Motor Transport Co. v.

Trucking Unlimited, 404 U.S. 508, 512-13 (1972), that petitioning activity
involving knowingly false information submitted to an adjudicative tribunal
might not enjoy antitrust immunity, the Court has never so held. See PRE, 508
U.S. at 61 n.6 (suggesting that the issues of whether there is a
misrepresentation exception to Noerr and, if so, the extent thereof, remain
open). Moreover, since California Motor, the Supreme Court has decided a case
that casts doubt on whether such an exception exists under any circumstances
and dictates that, in the circumstances of this case, we honor the Hospital
defendants' claim to immunity.

27

In Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365 (1991), Columbia
Outdoor Advertising, Inc. ("COA") controlled 95 percent of the billboard rental
business in Columbia, South Carolina. According to respondent Omni Outdoor
Advertising, Inc. ("Omni"), a newcomer to the market, COA and city officials
conspired to restrain competition in the market through adoption of a zoning
ordinance limiting the size, spacing, and location of billboards in the city. Omni
filed suit against the city and COA alleging a violation of the Sherman Act. A
jury found the existence of a conspiracy between the city and COA, and both
were held liable for Omni's injuries despite their insistence that they were
entitled to antitrust immunity under Parker and Noerr, respectively.

28

The Court first concluded that Omni's alleged injury was the result of state
action. South Carolina had authorized its municipalities to regulate land use and
construction and, in doing so, had provided a "clear articulation of state policy

to authorize anticompetitive conduct by the municipality in connection with its

regulation." Omni, 499 U.S. at 372 (quoting Town of Hallie v. City of Eau
Claire, 471 U.S. 34, 40 (1985)). As the Court explained:
29

The very purpose of zoning regulation is to displace unfettered business

freedom in a manner that regularly has the effect of preventing normal acts of
competition, particularly on the part of new entrants. A municipal ordinance
restricting the size, location, and spacing of billboards (surely a common form
of zoning) necessarily protects existing billboards against some competition
from newcomers.

30

Id. at 373 (footnote omitted).

31

Having thus concluded that "the city's restriction of billboard construction was
prima facie entitled to Parker immunity," id. at 374, the Court turned to the
issue of whether the existence of a conspiracy between city officials and COA
had stripped the city of that immunity. It first noted the foundation of Parker
immunity:

32

The rationale of Parker was that, in light of our national commitment to

federalism, the general language of the Sherman Act should not be interpreted
to prohibit anticompetitive actions by the States in their governmental
capacities as sovereign regulators.

33

Id. It then observed that if conspiracy was taken to mean "nothing more than an
agreement to impose the regulation in question," the purpose of Parker
immunity would be defeated because "it is both inevitable and desirable that
public officials often agree to do what one or another group of private citizens
urges upon them." Id. at 375.

34

Because the jury had been instructed that a conspiracy was "an agreement . . .
to accomplish an otherwise lawful result in an unlawful manner," id. at 376 n.5,
the Court next considered whether Parker immunity is lost when it is shown
that an agreement between the defendants involved governmental corruption,
bribery, or other violations of state or federal law. It held that Parker immunity
remains in such circumstances. The Court found "impractical" the contention
that Parker immunity is forfeited by governmental corruption, "defined
variously as `abandonment of public responsibilities to private interests,' . . .
`corrupt or bad faith decisions,' . . . and `selfish or corrupt motives.' " Id. at 376.
Such a rule would call upon antitrust courts to speculate as to whether state
action purportedly taken in the public interest was the product of an honest

judgment or desire for private gain. The Court stressed that Parker "was not
meant to shift [judgments about the public interest] from elected officials to
judges and juries." Id. at 377.
35

With respect to the contention that Parker immunity should be forfeited at least
where bribery or other illegal activity may have subverted the state decision
making process, the Court observed that this approach had "the virtue of
practicality but the vice of being unrelated to" the purposes of the Sherman Act
and Parker. Id. at 378. It chose to rely on sanctions other than the Sherman Act
to discourage such behavior:

36

To use unlawful political influence as the test of legality of state regulation

undoubtedly vindicates (in a rather blunt way) principles of good government.
But the statute we are construing is not directed to that end. Congress has
passed other laws aimed at combating corruption in state and local
governments.

37

Id. at 378-79.

38

For these reasons, the Court rejected "any interpretation of the Sherman Act
that would allow plaintiffs to look behind the actions of state sovereigns to base
their claims on [charges that the state's decision making process was corrupted
by bribery or other unlawful activity]." Id. at 379. It concluded its discussion of
the city's immunity by "reiterat[ing] that, with the possible market participant
exception,4 any action that qualifies as state action is `ipso facto . . . exempt
from the operation of the antitrust laws.' " Id. at 379 (emphasis in original)
(quoting Hoover v. Ronwin, 466 U.S. 558, 568 (1984)).

39

Turning to the liability of Omni, the Court addressed whether Noerr's immunity
for private parties was subject to any of the exceptions that had been urged in
the context of Parker immunity.5 It declined to restrict Noerr immunity in this
way for the same reason it had declined to so restrict Parker immunity:

40

Insofar as the identification of an immunity-destroying "conspiracy" is

concerned, Parker and Noerr generally present two faces of the same coin. . . .
The same factors which, as we have described above, make it impracticable or
beyond the purpose of the antitrust laws to identify and invalidate lawmaking
that has been infected by selfishly motivated agreement with private interests
likewise make it impracticable or beyond that scope to identify and invalidate
lobbying that has produced selfishly motivated agreement with public officials.
"It would be unlikely that any effort to influence legislative action could

succeed unless one or more members of the legislative body became . . .`coconspirators' " in some sense with the private party urging such action. And if
the invalidating "conspiracy" is limited to one that involves some element of
unlawfulness (beyond mere anticompetitive motivation), the invalidation would
have nothing to do with the policies of the antitrust laws. In Noerr itself, where
the private party "deliberately deceived the public and public officials" in its
successful lobbying campaign, we said that "deception, reprehensible as it is,
can be of no consequence so far as the Sherman Act is concerned. " 365 U.S. at
145.
41

Id. at 383-84 (emphasis added).

42

The teachings of Omni are pertinent here. Considerations of federalism require

an interpretation of the Sherman Act that forecloses liability predicated on
anticompetitive injuries that are inflicted by states acting as regulators. Liability
for injuries caused by such state action is precluded even where it is alleged
that a private party urging the action did so by bribery, deceit or other wrongful
conduct that may have affected the decision making process. The remedy for
such conduct rests with laws addressed to it and not with courts looking behind
sovereign state action at the behest of antitrust plaintiffs. Federalism requires
this result both with respect to state actors and with respect to private parties
who have urged the state action.

43

Here, the Department is authorized by state statute to regulate the number, size,
and spacing of health care facilities. Like the statute in Omni, this statute
provides a "clear articulation of state policy" which authorizes the Department
"to displace unfettered business freedom in a manner that regularly has the
effect of preventing normal acts of competition, particularly on the part of new
entrants." Id. at 373. While it is true that the challenged decision of the
Department involved an individualized application of established criteria, rather
than the establishment of criteria as in Omni, the Department's action was every
bit as essential to the execution of the sovereign's regulatory policy as was the
adoption of the zoning ordinance by the Columbia city council.

44

The Surgical Center's CON application called upon the Department to

determine whether the opening of a new ASC was in the public interest. The
Department conducted its own investigation and then held a hearing at which
all interested parties had the opportunity to tender evidence and argument. It
then made findings and determined that the issuance of the CON was not in the
public interest. After a second hearing, that determination was concurred in by
the Board, and the Commonwealth Court thereafter concluded that the Board's
decision was supported by substantial evidence.

45

It is not clear to us that the issue of whether the Hospital's new facility would
be completed was considered important by the Department or the Board.
Neither made an express finding on that issue.6 It is clear from the Board's
written decision, however, that the Board heard evidence on the issue, knew
construction had been halted, and believed "there was credible evidence that the
project ha[d] not been abandoned." Board Op. at 14. Thus, to the extent this
issue was material, the record reflects that the decision makers recognized that
there was a dispute and made a credibility determination concerning it.

46

On the facts alleged in the complaint, it is also clear that the state decision
makers were disinterested, conducted their own investigation, and afforded all
interested parties an opportunity to set the record straight. The initial decision
was then twice reviewed. Finally, anyone who believed that a fraud was
committed on the Department or Board could have moved to reopen the
proceeding and attempted to persuade them that they were materially misled.
See, e.g., 1 Pa. Code SS 35.231, 35.233 (authorizing a reopening of an
administrative proceeding on motion of a participant or by the agency whenever
the public interest requires). As matters currently stand, however, the
Department's decision concerning where the public interest lies remains in
place as the final decision of the Board and the judgment of the Commonwealth
Court.

47

In these circumstances, Omni compels us to affirm the District Court.7 Indeed,

such a result seems to follow, a fortiori, from Omni given the conceded
presence here of disinterested decision makers, an independent investigation, an
open process, and extensive opportunities for error correction. The risk that the
plaintiff 's injury is not the result of a bona fide execution of state policy is far
less substantial here than in Omni and there is, accordingly, far less justification
for federal court review of the state's policy judgment. For these reasons, we
must decline the Surgical Center's invitation to look behind the decisions of the
Department, the Board, and the Commonwealth Court. Rather, based on Omni,
we are constrained to honor the Hospital defendants' claim to Noerr immunity.8
V.

48

Accordingly, we will affirm the District Court's order dismissing the Surgical
Center's complaint for failure to state a claim upon which relief may be
granted.

NOTES:

Honorable Murray M. Schwartz, Senior Judge for the United States District
Court for the District of Delaware, sitting by designation.

The Act of Feb. 23, 1996, P.L. 27, 1996 Pa. Laws 10, S 9(a) (repealing Pa. Stat.
Ann. tit. 35, SS 448.501-448.507), has since eliminated the Health Facility
Hearing Board and transferred its review functions to the Health Care Policy
Board. This change does not affect our review of the Surgical Center's appeal.

Plaintiff 's allegations that both the threatened boycott and the claimed
misrepresentations were intended to secure denial of the CON distinguish the
situation before us from cases like Cheminor Drugs, Ltd. v. Ethyl Corp., 168
F.3d 119 (3d Cir. 1999), that deal with the "sham" exception to the Noerr
doctrine. In Cheminor, the defendant, Ethyl, had petitioned the International
Trade Commission and the Department of Commerce, alleging that Cheminor
was dumping bulk ibuprofin on the U.S. market and seeking the imposition of
extra duties to offset the alleged subsidies that enabled it to do so. Although
Cheminor withdrew from the U.S. market prior to a final decision on Ethyl's
petition, it alleged injuries resulting from the petition and brought an antitrust
suit against Ethyl. In response to Ethyl's reliance on Noerr immunity, Cheminor
asserted that the petition was a "sham" and Noerr immunity thus was
unavailable. We analyzed and rejected Cheminor's argument under the
teachings of PRE.
PRE holds that Noerr immunity is lost when the petition is a "sham," i.e., "is
not genuinely aimed at procuring favorable government action." PRE, 508 U.S.
at 58. As we noted in Cheminor, PRE further holds that determining whether a
petition is a sham requires a two-step process. First, the Court determines
whether the petition is "objectively baseless;" if not, the petition is not a sham
without regard to the subjective intent of the petitioner. Second, if the petition
is objectively baseless (and only if it is objectively baseless), the Court is to
look to the petitioner's "subjective motivation" and determine "whether the
baseless [petition] conceals an attempt to interfere directly with the business
relationships of a competitor through the use of governmental process -- as
opposed to the outcome of that process -- as an anticompetition weapon." 508
U.S. at 60-61 (emphasis in original) (quoting Noerr, 365 U.S. at 144, and Omni,
499 U.S. at 380).
Cheminor holds that where the petitioning effort allegedly involves
misrepresentations, the Court, at the first step, must "determine whether [the]
petition was objectively baseless under[PRE] without regard to those facts that
the [plaintiff] alleges [the petitioner] misrepresented." Cheminor, 168 F.3d at
123 (emphasis in original). Such a determination is unnecessary here, however,
because the plaintiff affirmatively alleges that defendants' purpose was to

secure the outcome of the process -- denial of the CON. Thus, even if
defendants' opposition to the CON were found to be objectively baseless (a
conclusion that could not be reached on this record), defendants would pass the
second, "subjective" test and the sham exception to Noerr immunity would be
inapplicable here.
While Cheminor focuses on the sham exception to Noerr immunity, it also
rejects Cheminor's more general argument that "Noerr-Pennington immunity
does not apply at all to petitions containing misrepresentations." Id. To that
extent, it supports the conclusion reached below with respect to the
misrepresentation claim.
3

While plaintiff also claims "increased costs, legal and otherwise, in pursuing
Plaintiff's application for a CON," the referenced costs apparently relate to the
appeal plaintiff prosecuted from the Board's decision. Plaintiff does not contend
that it incurred costs at the Board level in excess of the cost it would have
incurred had the threat of a boycott (or the alleged misrepresentations) not been
made.

The referenced possible exception relates to state action as a purchaser or seller

in the market rather than as a sovereign regulator.

The Court first concluded that the "sham" exception to Noerr immunity was
inapplicable because that exception "encompasses situations in which persons
use the governmental process -- as opposed to the outcome of that process -- as
an anticompetitive weapon." Id. at 380. COA had sought to use only the
outcome of the process to suppress competition.

The Board's "need projection formula" projected a need for 6.5 operating
rooms. The Hospital currently had six general purpose operating rooms and a
room used for "short procedures" such as endoscopies, colonoscopies and
sigmoidoscopies. If and when the Hospital's proposed facility was completed,
three of the general purpose operating rooms would be closed and the
ambulatory surgical services provided in the main building would be provided
in the new facility. The Surgical Center proposed to add two operating rooms
under circumstances where the State Health Plan's need-project formula
indicated, at most, need for one additional (seventh) operating room. In terms
of the population to be served and the surgical services to be rendered, the
Surgical Center's project would do little other than raise the number of
operating rooms in Armstrong County above the limit set by the State Health
Plan. The Board, therefore, concluded that approval of the instant CON
application would result in needless duplication of existing facilities and health
care services. While the Surgical Center projected a higher need and suggested

that its facility would serve a larger area than the hospital, the Board found its
projections flawed. The opinion of the Commonwealth Court establishes that it
also understood this to be the basis for the Board's ruling, a basis for which it
found support in the record.
7

We acknowledge that the result we reach is in conflict with the holding of the
court in St. Joseph's Hospital v. Hospital Corp. of America, 795 F.2d 948 (11th
Cir. 1986) and with the analysis of the courts in Kottle v. Northwest Kidney
Centers, 146 F.3d 1056 (9th Cir. 1998) and Potters Medical Center v. City
Hospital Ass'n., 800 F.2d 568 (6th Cir. 1986). To the extent of that conflict, we
respectfully disagree with the views there expressed. We note that the courts in
St. Joseph's Hospital and Potters Medical Center did not have the benefit of the
Supreme Court's 1991 decision in Omni and that Kottle's brief analysis does not
reference that decision.

This is not a case like Walker Process Equip., Inc. v. Food Machinery and
Chem. Corp., 382 U.S. 172 (1965), or Woods Exploration & Prod. Co., Inc. v.
Aluminum Company of America, 438 F.2d 1286 (5th Cir. 1971). In Walker, the
state action was the issuance of a patent which allegedly had been procured by
fraud. The attempted enforcement of the patent against the plaintiff was held
actionable under the Sherman Act. The decision making process there was an
ex parte one in which the Patent Office was wholly dependent on the applicant
for the facts. While the Patent Office can determine the prior act from its own
records, it effectively and necessarily delegates to the applicant the factual
determinations underlying the issuance of a patent. Accordingly, when the
applicant has submitted false factual information, the state action is dependent
on financially interested decision making. See Einer Elhauge, Making Sense of
Antitrust Petitioning Immunity, 80 Calif. L. Rev. 1177, 1249 (1992)
(suggesting that the immunity exception recognized in Walker is "very narrow"
and applies only when financially interested parties essentially made the factual
determinations that triggered the governmental restraint). The same is true of
the situation in Woods where the Texas Railroad Commission was wholly
dependent on the antitrust defendants for the factual information on which it
predicated its allocation of production from a given field.
SCHWARTZ, Senior District Judge, Dissenting:

49

With its decision today, the majority holds private parties who make
misrepresentations that pervasively influence the decision making process of
public entities are entitled to immunity under both the state action immunity
doctrine and the Noerr-Pennington immunity doctrine. The majority opinion
conflicts with the teaching of this Court in an opinion issued less than four

months ago, which held that under certain circumstances applicable here,
material misrepresentations that affect the core of a litigant's submissions to an
administrative body are not entitled to Noerr-Pennington immunity. See
Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119 (3d Cir. 1999).
50

I respectfully dissent for three reasons. First, I believe the misrepresentation

exception to the Noerr-Pennington doctrine should be applied when intentional
falsehoods pervade the entire state administrative proceeding leading to the
denial of plaintiff 's application for a certificate of need ("CON"). Second, the
majority's position that the misrepresentation exception has no place in the
jurisprudence of this Circuit is not supported by case law. Finally, the majority
relies on a Supreme Court decision that is not applicable to this case. As a
consequence, the defendant should not be able to escape liability for its
misrepresentations under either the state action or Noerr- Pennington immunity
doctrines.

51

According to the majority opinion, the defendants are immune from antitrust
liability for their conduct during the course of petitioning the Pennsylvania
State Health Facility Hearing Board ("Board") to deny plaintiff 's application
for a CON. The majority opinion finds City of Columbia v. Omni Outdoor
Advertising, Inc., 499 U.S. 365 (1991), supports the dismissal of plaintiff's
claim. First, the majority finds that the District Court properly dismissed the
boycott and misrepresentation claims under the Noerr-Pennington doctrine. The
majority believes that Omni and Cheminor Drugs cast doubt on whether a
misrepresentation exception to Noerr-Pennington immunity exists under any
circumstances. Further, even if a misrepresentation exception exists, the
majority asserts that the alleged misrepresentations were irrelevant because the
Board denied the CON on grounds independent of the misrepresentations. The
majority emphasizes that the decision makers were disinterested, conducted an
independent investigation, and the process afforded opportunities for error
correction. In summary, the majority has essentially found the denial of the
CON was untainted by the alleged misrepresentations or boycott threats.

52

Second, the majority decision argues it was not the boycott or

misrepresentation, but rather the denial of the CON that was the direct cause of
the Surgical Center's alleged injuries. The majority concludes denial of the
CON was state action and the Hospital parties are therefore immunized from
antitrust liability under state action immunity, arguing that "[l]iability for
injuries caused by such state action is precluded even where it is alleged that a
private party urging the action did so by . . . wrongful conduct that may have
affected the decision making process." [Majority opinion at page 15]. Given the
procedural posture of a motion to dismiss, I believe the majority's conclusion is

not only impermissible fact-finding, but also contrary to the Surgical Center's
entitlement to all favorable inferences and resolution of factual disputes in its
favor.1
DISCUSSION
I. The Hospital Parties' Actions
53

Armstrong Surgical Center asserts the Hospital parties conspired to subvert the
establishment of its facility by announcing to the Board, which was reviewing
the Surgical Center's CON application, their intent to boycott the facility, and
by submitting false and misleading information to the Board regarding the
Hospital's ASC. The purpose of the boycott and misrepresentations was to
eliminate a potential new entrant whose competition would adversely affect all
the defendants. The Hospital has a complete area monopoly in providing
operating room services. The nineteen physicians who sent boycott letters
performed nearly 90% of all surgery in the relevant geographic area. Thus, the
Hospital parties' actions targeted two criteria the Board considers in reviewing a
CON application: (1) the need for the facility, and (2) its prospective economic
viability.

54

The nineteen physicians in question sent letters to the Board, as it was

considering the CON application, stating they would not use the plaintiff's
ASC, but would only use the (fictional) ASC provided by the Hospital. The
letters stated:

55

I do not intend to perform surgery at the proposed Armstrong Surgical Center. I

intend to use the services of the Ambulatory Surgery Center at Armstrong
County Memorial Hospital. The hospital's Ambulatory Surgical Center
provides the highest quality medical care at the most reasonable cost.

56

The letters go on to suggest that since the Hospital's ASC is superior, the
proposed ASC is unnecessary: "It duplicates services already being provided,
and it is not cost effective." All nineteen letters submitted to the Board were on
the Hospital stationery, and contained the same language.

57

The Pennsylvania Department of Health ("Department") disapproved plaintiff 's

CON application on November 23, 1993. The Board affirmed the Department's
decision on March 13, 1996. The Board relied on two grounds for affirming the
denial of the CON: (1) the Board found the Hospital ASC made Armstrong's
ASC duplicative and unnecessary, and (2) Armstrong's ASC would not be

economically viable because 90% of the staff physicians would not use it.
58

The Hospital misrepresented to the Board that its ASC was substantially built
and would be ready for use in the near future. When the Hospital parties made
their misrepresentations, they knew the Hospital had ceased construction of its
outpatient facility months before the hearing, and that construction had not
resumed. The fact that the Department learned that this representation was false
before it denied the CON does not detract from the falsity of the representation.
The Department and the Board learned construction on the Hospital ASC had
been interrupted, but they did not know the Hospital had no intent to build or
operate a Hospital ASC. In fact, the Board opinion demonstrates the opposite
was true. Although the Board knew the Hospital was using the building as a
storage facility, it was led to believe that the Hospital had not abandoned the
project. Further, because it was not in its economic interest, the Hospital did not
plan to resume construction if Armstrong's CON application was denied. The
Board's decision relied on the misrepresentation that the Hospital ASC was or
would be built and the threat of a boycott.

59

Armstrong's ASC would not be economically viable because the nineteen

physicians who performed nearly all surgeries in the area would not use the
new facility if completed because they would use the Hospital ASC. The Board
noted the effect of the boycott letters sent by the physicians in explaining its
denial of Armstrong's CON application:

60

[T]he most damaging evidence is that the number of physicians who might
have been expected to support the facility decreased significantly after the
Applicant had submitted its projections. . . . The nineteen physicians who
opposed the project in writing are responsible for approximately 90 percent of
all surgery performed at the Hospital and each is on the Hospital's staff.

61

In other words, after the application was submitted (and for whatever reason)
support for the facility eroded among physicians who either had supported it
initially or were being counted upon for their eventual participation. Because
the Applicant would therefore have to generate much of its volume from
outside the service area or from patients who reside in the service area but
currently "migrate" to other locales for ambulatory surgery, we seriously doubt
that the volume projections made for the facility can be achieved.

62

Board Op. at 47-48 (citations and footnote omitted).

63

With these facts in mind, I turn to the majority conclusion that the Hospital

parties have immunity for the injuries resulting from their misrepresentations.
64

II. Applicability of the Noerr-Pennington Doctrine

65

The Hospital parties contend the Noerr-Pennington immunity doctrine applies

because their announced intentions not to perform operations at Armstrong's
ASC facility and statements regarding the existence of the Hospital ASC came
in the context of supplying information to state agencies. In general, the NoerrPennington doctrine immunizes concerted efforts to restrain or monopolize
trade when petitioning the government. Eastern R.R. Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127 (1961); see Professional Real Estate
Investors, Inc. v. Columbia Pictures Indus., Inc. ("PRE"), 508 U.S. 49 (1993).
The purpose or motive in petitioning government officials is irrelevant; the fact
that the sole purpose might be to destroy a competitor does not undermine the
protection afforded by the immunity. Noerr, 365 U.S. at 139. This is true even
if "some direct injury" is an "incidental effect" of legitimate petitioning activity,
regardless of whether the petitioner is aware of the infliction of such injury. Id.
at 143-144.2

66

If the physicians had simply expressed their opposition to the proposed facility
without intentionally misleading administrative decision makers about their
intent to use the uncompleted Hospital ASC, the Noerr-Pennington doctrine
would protect their statements. Similarly, if the Hospital had not informed the
administrative decision makers it was going to build and operate a Hospital
ASC, or if it had informed the decision makers it originally intended to build
and operate a Hospital ASC but had concluded it would no longer do so, NoerrPennington immunity would be available to them. However, as set forth above
and in the majority opinion, that is not what occurred.

67

A. Courts Have Distinguished Between Misrepresentations Made In The

Political Context As Opposed to the Administrative or Adjudicative Context

68

The majority's reliance on City of Columbia v. Omni Outdoor Advertising, Inc.,

499 U.S. 365 (1991), for the proposition that there is no misrepresentation
exception to Noerr-Pennington immunity is misplaced. In Omni, one defendant
sought to persuade the city of Columbia to create zoning ordinances, which had
a detrimental effect on the plaintiff, who was a competitor of that defendant.
The Supreme Court held that the defendant was not liable for antitrust
violations for statements made to the city. 499 U.S. at 382. Omni reaffirmed
that deliberate misrepresentations in the legislative arena, "reprehensible as
[they are], can be of no consequence so far as the Sherman Act is concerned."

Id. at 384. The majority's reliance on Omni is not persuasive because here, the
setting is an adjudicatory arena, not a lobbying or legislative one as in Omni.
69

The majority cites Omni for the proposition that there is no misrepresentation
exception. PRE, which was decided two years after Omni, suggests that the
issue of whether there is a misrepresentation exception to Noerr-Pennington
remains an open question. 508 U.S. at 61 n.6. While PRE cited California
Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 512-13 (1972), with
approval, the Supreme Court in PRE declined to decide whether Noerr permits
antitrust liability for a litigant's fraud or other misrepresentations. 508 U.S. at
61 n.6.

70

The Supreme Court has stated, not once, but twice, that "[m]isrepresentations,
condoned in the political arena, are not immunized when used in the
adjudicatory process." California Motor Transp., 404 U.S. at 513. Allied Tube
& Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 499-500 (1988), stated that
unethical and deceptive practices in "less political arenas," such as
administrative or adjudicatory settings, could violate antitrust laws. Thus, the
Supreme Court has broadly hinted Noerr-Pennington immunity is not intended
to shield petitioning activities that do not further, but rather distort, the
decision-making process in the non-legislative context.

71

Several Circuit Courts of Appeal also have distinguished between the level of
immunity afforded to misrepresentations made in different forums. In Potters
Medical Center v. City Hospital Ass'n, 800 F.2d 568, 571 (6th Cir. 1986), the
plaintiff alleged that the defendant hospital's certificate of need application
contained materially false statements about the plaintiff. The court stated that
"the knowing and willful submission of false facts to a government agency falls
within the sham exception to the Noerr-Pennington doctrine." Id. at 580. The
Fifth Circuit in Woods Exploration & Producing Co. v. Aluminum Co. of
America, 438 F.2d 1286, 1296-98 (5th Cir. 1971), cert. denied, 404 U.S. 1047
(1972), held that Noerr did not protect, inter alia, the filing of false production
forecasts with a state regulatory commission. The court stated that the NoerrPennington doctrine seeks to protect attempts to influence policies and held that
"the abuse of the administrative process here alleged does not justify antitrust
immunity." Id. at 1298.

72

Other cases have held the Noerr-Pennington doctrine does not immunize
misrepresentations made in the administrative or adjudicative context. See, e.g.,
Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119, 124 (3d Cir. 1999)
(holding that material misrepresentations in an adjudicative arena are not
protected by Noerr-Pennington immunity); Whelan v. Abell, 48 F.3d 1247,

1255 (D.C. Cir. 1995) (finding that if sham claim involves administrative
agencies, then Noerr does not protect "petitions based on known falsehoods");
St. Joseph's Hosp., Inc. v. Hospital Corp. of Am., 795 F.2d 948, 955, reh'g
denied en banc , 801 F.2d 404 (11th Cir. 1986), see infra; Ottensmeyer v.
Chesapeake & Potomac Tel. Co., 756 F.2d 986, 994 (4th Cir. 1985) (suggesting
that knowing submission of false information to police -- communications
which "do not constitute the type of `political activity' protected by the NoerrPennington doctrine" -- would fall within the sham exception); Clipper
Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1261
(9th Cir. 1982) (stating that Noerr does not immunize false information given to
an administrative or adjudicatory body), cert. denied, 459 U.S. 1227 (1983);
Israel v. Baxter Labs., Inc., 466 F.2d 272, 278 (D.C. Cir. 1972) ("No actions
[efforts to deceive the Food and Drug Administration] which impair the fair
and impartial functioning of an administrative agency should be able to hide
behind the cloak of an antitrust exemption.").
73

The rationale for limiting immunity for private actors' efforts to mislead
adjudicatory or administrative officials is that these entities, as compared to
legislative bodies, rely on information supplied by the parties to a greater extent
than legislative bodies. Allied Tube, 486 U.S. at 499-500. The Ninth Circuit in
Clipper Exxpress, 690 F.2d at 1261, explained:

74

There is an emphasis on debate in the political sphere, which could

accommodate false statements and reveal their falsity. In the adjudicatory
sphere, however, information supplied by the parties is relied on as accurate for
decision making and dispute resolving. The supplying of fraudulent
information thus threatens the fair and impartial functioning of these agencies
and does not deserve immunity from the antitrust laws.

75

The majority recognizes the decision by the Department to deny the CON
involved an individualized application of established criteria. However, it
attempts to reconcile the difference between the adjudicative context and
legislative context by arguing that the Department's decision to deny the
certificate of need was "essential to the execution of the sovereign's regulatory
policy" regarding health care facilities. [Majority opinion at page 163]. This
distinction is unpersuasive. Although the government agency's decision on the
certificate of need application could be viewed as essential to regulating health
care facilities, St. Joseph's Hospital, 795 F.2d at 955, and Kottle v. Northwest
Kidney Centers, 146 F.3d. 1056, 1063 (9th Cir. 1998), cert. denied, 119 S.Ct.
1031 (1999), both held that misrepresentations in this context do not have Noerr
immunity. Every adjudicative decision could be viewed as essential to a
sovereign's regulatory policy and thus, the majority would nullify the

distinction the Supreme Court and other appellate courts have made between
misrepresentations made in the legislative context as opposed to the
administrative or adjudicative context.
76

The majority appears to argue that the process employed by the Department
could uncover misrepresentations because the Department conducted its own
investigation. However, in Cheminor, the governmental bodies -- the
Department of Commerce ("DOC") and the International Trade Commission
("ITC") -- also conducted their own investigation, but another panel of this
Court still held material misrepresentations that affect the core of the
defendant's petition will preclude Noerr-Pennington immunity. 168 F.3d at 121,
124 (stating that the "DOC and ITC make final determinations after they have
conducted their own investigations . . . and after they have heard further
arguments from the parties involved"); see Clipper Exxpress, 690 F.2d at 126162 (stating that submitting false information in an adjudicatory proceeding can
be the basis for antitrust liability even if the agency was not misled by the
information). The majority's view, carried to its logical extreme, would allow
the more skillful liar to avoid antitrust liability so long as the decision maker
conducts its own investigation.

77

Moreover, it is not clear the Department conducted an independent

investigation. Rather, the Department relied on the Hospital defendants to give
truthful information so that it could make a fully informed decision. The
majority's opinion recognizes the Board was misled because the Board "made a
credibility determination" "that the project ha[d] not been abandoned."
[Majority opinion at page 17]. However, the majority refuses to acknowledge
that the Board opinion demonstrates that the denial of the CON was based on
the false belief, nurtured by the Hospital defendants, that the Hospital would
build its ASC.

78

B. Similar Cases Have Held That Misrepresentations Relating to a CON

Application Do Not Enjoy Noerr Immunity

79

The facts in St. Joseph's Hospital closely parallel those alleged by the plaintiff.
The defendant, Memorial Medical Center ("MMC"), was the sole provider of
cardiac surgery services in the relevant market area. 795 F.2d at 952. It opposed
St. Joseph's CON application, claiming it already had the capacity to perform
more heart procedures in the region than required, thus making its competitor's
services unnecessary. Id. The Board relied upon this information in denying St.
Joseph's request for a CON. Id. St. Joseph's sued, asserting MMC provided
false information to the Board. Id. at 953. The court found that the
misrepresentations were not made in the political arena and held that parties

furnishing false information to a government agency passing on specific

certificate applications are not entitled to Noerr-Pennington petitioning
immunity. The court held:
80

When a governmental agency such as [the State Health Planning Agency] is

passing on specific certificate applications it is acting judicially.
Misrepresentations under these circumstances do no not enjoy Noerr immunity.

81

Id. at 955. Accordingly, the court reversed the district court's decision granting
the defendant's motion to dismiss. Id. at 957.

82

The Ninth Circuit, like the Eleventh Circuit in St. Joseph's Hospital, also held
Noerr-Pennington immunity does not protect a party's intentional
misrepresentations in similar circumstances. Kottle v. Northwest Kidney
Centers, 146 F.3d. 1056 (9th Cir. 1998), cert. denied, 119 S.Ct. 1031 (1999).
As in this case, the district court in Kottle granted the defendant's motion to
dismiss. Id. at 1058-59. The Kottle court also examined allegedly false
information relating to a CON application. Id. at 1058. The court stated that if
misrepresentations made by a defendant were of such magnitude that the
"entire CON proceeding was deprived of its legitimacy," then the sham
exception to Noerr-Pennington immunity would apply. Id. at 1063.

83

The misrepresentations in Kottle were made in an administrative or

adjudicatory arena because the Department of Health, the decision maker,
conducted public hearings, accepted written and oral arguments, permitted
representation by counsel, issued written findings, and its decision was
appealable. Id. at 1062. In this case, the Department also conducted public
hearings, accepted evidence and argument from interested parties, made
findings, and its decision was appealable. Since the court in Kottle found that
the misrepresentations were not made in the political or lobbying context, the
court applied a different standard than the one set forth in Omni. Id. (stating
that "intentional misrepresentation to government officials" is treated
differently "outside of the political realm"). The court found, however, that the
plaintiff 's complaint fell short of invoking the sham exception because the
plaintiff 's vague allegations of misrepresentation were insufficient to overcome
the defendant's Noerr-Pennington immunity. Id. at 1064. The court could not
ascertain "what representations [the defendant] made, or to whom; with whom
[the defendant] conspired . . . or what other testimony the Department may have
had that could have influenced its decision to deny [plaintiff]'s CON
application." Id. In contrast, the plaintiff 's complaint in this case details the
alleged misrepresentations made by the defendants, and the Board decision
demonstrates that such material misrepresentations influenced its decision, as

well as that of the Commonwealth Court. See infra.

84

C. The Defendants' Actions Nullify Their Noerr- Pennington Immunity

85

Our recent decision in Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119 (3d
Cir. 1999), does not support the majority's position. In Cheminor, the defendant
Ethyl Corporation complained to the ITC and the DOC that plaintiff Cheminor
was dumping and selling ibuprofen at less than fair value. Id. at 120. Cheminor
brought antitrust claims in which it alleged that Ethyl's statements to the ITC
were baseless, made in bad faith, contained false statements, and were brought
only for anti-competitive reasons. Id. The issue decided by this Court was
whether alleged misrepresentations by Ethyl vitiated its Noerr- Pennington
immunity. The Court in Cheminor found the alleged misrepresentations were
neither material, nor affected the core of the defendant's petition because the
misrepresentations relating to the defendant's profitability were "only a small
proportion of the numerous factors the ITC must consider when making a
determination of material injury." Id. at 126. Therefore, we affirmed the
decision to grant summary judgment in favor of Ethyl because Cheminor did
not satisfy the first step of PRE's sham exception to the Noerr-Pennington
doctrine. Id. at 127.

86

Cheminor held material misrepresentations that "infect the core" of the

defendant's claim and the government's resulting actions are not entitled to
Noerr-Pennington immunity under the "objectively baseless" prong of PRE. Id.
at 123. Cheminor requires evaluation of misrepresentations in determining
whether a defendant is entitled to Noerr- Pennington immunity. The majority
relies on the following language in Cheminor to assert Cheminor stands for the
proposition that this Circuit has held the misrepresentation exception is not part
of its jurisprudence.

87

We decline to carve out a new exception to the broad immunity that NoerrPennington provides. Rather, we will determine whether [defendant]'s petition
was objectively baseless under the Supreme Court's test in PRE, without regard
to those facts that [plaintiff] alleges [defendant] misrepresented.

88

Id. There are three answers to the majority position. First, it ignores the
immediately succeeding sentence in the opinion:

89

If the alleged misrepresented facts do not infect the core of Ethyl's claim and
the government's resulting actions, then the petition had an objective basis and
will receive Noerr-Pennington immunity under the first step of PRE.

90

Id. I read this language as meaning that prior to determining whether the
"petition had an objective basis" the Court must determine "[i]f the alleged
misrepresented facts do . . . infect the core of Ethyl's claim." Id. If they do, the
misrepresentation exception applies and there can be no "objective basis" for
the defendant's position. If, on the other hand, the misrepresentation exception
is not applicable, the defendant's petition could well have an objective basis.

91

Second, the majority has not explained why, if the Cheminor court held there
was no misrepresentation exception to the Noerr-Pennington doctrine, it
formulated a test for the misrepresentation exception and then painstakingly
applied the test analyzing whether the misrepresented facts affected "the core of
Ethyl's claim and the government's resulting action. . . ." Id. Third, the court in
Cheminor relied on a district court case, Music Center S.N.C. Di Luciano
Pisoni & C. v. Prestini Musical Instruments Corp., 874 F. Supp. 543, 549
(E.D.N.Y. 1995). The specific language cited with approval by Cheminor
reads:

92

[A] determination [of objective basis] requires consideration, inter alia, of . . .

the nature of the particular allegations of the petition or actions before the
administrative agency claimed to be fraudulent or improper, and whether these
claimed misrepresentations or improper actions would have been significant to
the ultimate outcome or continuation of the proceeding.

93

Cheminor, 169 F.3d at 124 (citing Music Center, 874 F. Supp. at 549)
(emphasis added). If there were any doubts regarding the court's reliance on
Music Center and its approval of the misrepresentation exception to NoerrPennington immunity, the Cheminor court set them to rest:

94

If the government's action was not dependent upon the misrepresented

information, the misrepresented information was not material and did not go to
the core of Ethyl's petition. In sum, a material misrepresentation that affects the
very core of a litigant's . . . case will preclude Noerr-Pennington immunity, but
not every misrepresentation is material to the question of whether a petition
such as Ethyl's had an objective basis.

95

Id. at 124 (second emphasis added and footnote omitted). I am simply unable to
accept the majority's reading of Cheminor.

96

Further, the test set forth in Cheminor is applicable here because the alleged
misrepresentations in Cheminor were made in the adjudicative context. Omni is
not applicable because the alleged misrepresentations in that case were made in

a legislative context. In a factually similar case, the 11th Circuit found that "
[w]hen a government agency . . . is passing on specific certificate [of need]
applications it is acting judicially." St. Joseph's Hospital, 795 F.2d at 955.
Misrepresentations made under these circumstances do not enjoy Noerr
immunity. Id.

97

There is a final troubling aspect of the majority's opinion. Assuming this

dissent's position is correct that Cheminor recognizes a misrepresentation
exception as part of this Circuit's jurisprudence and that the majority holds
there is no misrepresentation exception to the Noerr-Pennington immunity
doctrine, the majority has done something it cannot do. Under Rule 9.1 of the
Internal Operating Procedures of this Court, "no subsequent panel overrules the
holding in a published opinion of a previous panel."

98

1. The Defendants' Alleged Misrepresentations Were Material And Infected

The Core Of The Defendants' Statements To The Department

99

The legitimacy of the Board's decision is in question because it relied upon

materially false information and was influenced by threats of an illegal boycott.
As stated previously, at this stage of the litigation, the plaintiff is entitled to all
favorable inferences and resolution of factual disputes in its favor. Therefore,
the court must examine whether Armstrong Surgical is entitled, at a minimum,
to an inference that the misrepresentations were not only material, but also
affected the core of the defendant's claims.

100 The majority concluded the Board would have denied the CON application
regardless of whether the Hospital ASC would be completed. However, the
Board's opinion clearly shows that it premised the denial of the CON upon the
Hospital's misrepresentation that it would complete and operate a Hospital
ASC. In successive Findings of Fact the Board found:
101 25. The Hospital has partially completed construction of a building on its
premises that would house a dedicated outpatient surgical facility.
102 26. Upon completion of the Hospital's outpatient surgical facility, three of its
existing operating rooms would be moved into the new building.
103 27. The proposed ambulatory surgery center and the one which has been
partially constructed by the Hospital would serve the same population and
would provide essentially the same surgical services.

104 28. The Applicant's proposed ambulatory surgery center would needlessly
duplicate existing facilities and health care services in Armstrong County.
105 Board Op. at 6 (citations omitted). Taken in context the phrase "needlessly
duplicate existing facilities," supra, can only mean that Armstrong's proposed
ASC would duplicate the proposed Hospital ASC. In addition, the letters from
the 19 physicians stated that the proposed facility duplicated the services
already being provided. As previously rehearsed, the Hospital parties knew
there was no commitment or intent to complete a functioning Hospital ASC.
106 Not only the Findings of Fact, but also the Board opinion make clear that the
Board, relying upon the misrepresentations of the Hospital parties, premised its
denial of the CON and its entire discussion of need- projection upon there
being no need for two ASCs-- the Hospital's ASC and Armstrong's ASC:
107 Although outpatient surgery at the Hospital is now performed in the same
operating room as inpatient surgery, the Hospital has partially(9) completed
construction of a building on its premises to house a dedicated outpatient
surgery facility. Upon completing construction, the Hospital would move three
existing operating rooms into the new building.
108 With regard to the population to be served and the surgical services to be
offered, there would be little difference between the Applicant's ambulatory
surgical center and the one that the Hospital has partially completed, except
that the Applicant's project would raise the number of operating rooms in
Armstrong County above the limit set by the SHP. We conclude that approval
of the instant CON application would result in needless duplication of existing
facilities and health care services.
109 We believe that the factors set forth above, in themselves, are sufficient to
support a finding that the Applicant has failed to establish need for the
proposed facility by the population to be served. . . .

Apparently, after construction of the building and some of the interior walls had
been completed, staff physicians at the Hospital began to question whether a
separate outpatient facility was necessary. Although the building is currently
being used as a storage facility, there was credible evidence that the project has
not been abandoned

Board Op. at 14 (citations omitted). It is noteworthy that the three

Commonwealth Court judges, conducting judicial review, were of the belief
that the Hospital ASC would be completed:
The hospital has partially completed construction of a building on its premises
that would house a dedicated outpatient surgical facility. Upon completion of
the hospital's outpatient surgical facility, three of its existing operating rooms
would be moved into the new building.
The proposed ambulatory surgery center and the one which has been partially
constructed by the hospital would serve the same population and would provide
essentially the same surgical services. Armstrong's proposed ambulatory
surgery center would needlessly duplicate existing facilities and health care
services in Armstrong county.
Commonwealth Court Op. p. 5. At the very least four judges -- three
Commonwealth judges and this judge -- read the Board opinion as indicating
that the Department believed the Hospital ASC would be completed.
The presence or absence of a Hospital ASC was significant. A CON is granted
if a proposed health care expenditure will meet medical needs of the target
population in an effective and cost efficient manner. See Pa. Stat. Ann. tit. 35 S
448.707. There is no question that an ASC was more cost efficient than the
continued use of the six hospital operating rooms. The Hospital's own
accountant documented projected average cost savings of $400 per case if an
ASC were used relative to the current Hospital operating rooms.
The issue before the Board was whether there would be overcapacity of ASCs
if a CON were issued to Armstrong. Because the misrepresentations led the
Board to believe there would be a Hospital ASC, it never reached the issue of
delivering effective and cost efficient medical services under the scenario in
which there was no Hospital ASC. There is simply no way for the District
Court or this Court to determine whether the Board would have granted the
CON had it known the true facts. With the Court having to accept all wellpleaded facts as true and resolve them in the light most favorable to the
nonmovant, see Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc.,
140 F.3d 478, 483 (3d Cir. 1998), the plaintiff is surely entitled to the
reasonable inference that the Board predicated its decision, in major part, on the
belief that a Hospital ASC would be completed. Therefore, I would hold the
alleged misrepresentations deprive the Hospital parties of Noerr- Pennington
immunity because their misrepresentations were material and infected the very

essence or core of the administrative proceeding and consequent denial of the

CON by the Board and affirmance of the Board's decision by the
Commonwealth Court. Where as here, the misrepresentations caused the Board
and Commonwealth Court to make their determinations based upon the
existence of a fictional Hospital ASC, the administrative proceeding and
Commonwealth Court review have been deprived of their legitimacy.
2

Noerr-Pennington Immunity Does Not Protect Threats of an Illegal Boycott

While an issue of first impression, the question of whether Noerr-Pennington
petitioning immunity protects threats of an illegal boycott must also be
answered in the negative. The Supreme Court has stated, "[t]here are many
other forms of illegal and reprehensible practice which may corrupt the
administrative or judicial processes and which may result in antitrust
violations." California Motor Transp., 404 U.S. at 513. If the Supreme Court
would not immunize misrepresentations in the judicial or administrative
context, it surely would not immunize threats of illegal activity when they
corrupt the administrative adjudication process. Where a threat of illegal
activity plays such a strong role in the administrative decision-making process
and forms part of the basis for an administrative decision, it is impossible to say
that the process has not been corrupted. Denying Noerr-Pennington immunity
to those who provide false information to the government in its deliberative
decision- making process can only improve the information flowing to the
government.
Attention is now turned to whether the Hospital parties are protected by state
action immunity as urged by the majority.
III. Applicability of State Action Immunity
The majority opinion also dismisses Armstrong's complaint on the theory that
the Hospital defendants' actions are immunized under the Parker state action
immunity doctrine. See Parker v. Brown, 317 U.S. 341 (1943). The state action
immunity doctrine has two related aspects. First, as elaborated in Parker, state
action immunity protects parties who engage in otherwise actionable antitrust
conduct, pursuant to, and in reliance upon, state action. Second, state action
immunity applies when the antitrust injury complained of arises directly from
state action, as distinguished from the private action alleged in the complaint
before us. Noerr, 356 U.S. at 136. In this case, neither aspect of state action
immunity is applicable. 3

It is clear the actions complained of were not pursuant to, or in reliance upon,
state action. Indeed, reliance upon the state action of denial of the CON to
immunize unlawful anti-competitive conduct which occurred prior to and
caused the denial of the CON presents severe conceptual difficulties. The only
state action was denial of the CON. The Hospital parties engaged in no alleged
unlawful anti- competitive behavior following the denial of the CON. Rather,
the misrepresentations combined with the expressed intent to engage in a
boycott all occurred before the Board's denial of the CON. With this state of
affairs, it is difficult to understand how the misrepresentations coupled with the
stated intent to boycott are somehow immunized by the CON, where the
alleged wrongful activity itself was directed to and resulted in the denial of the
CON. Furthermore, even assuming these conceptual difficulties are not
insurmountable, there is no indication the Hospital parties relied upon the
denial of the CON in carrying out the alleged unlawful anticompetitive
behaviors, or were authorized by the state to do so. Indeed, the Parker court
expressly noted that "a state does not give immunity to those who violate the
Sherman Act by authorizing them to violate it, or by declaring that their action
is lawful." 317 U.S. at 351. Therefore, the "authorization" aspect of state action
immunity is not applicable to the facts of this case.
The second aspect of state action immunity doctrine "immunizes" antitrust
injuries directly caused by state action. It is this second aspect upon which the
majority opinion rests, arguing that liability for injuries caused by such state
action is precluded even where it is alleged that a private party urging the
action did do by unlawful conduct.
The defendants' actions are not protected by state action immunity for two
reasons. First, at least some of the injuries of which Armstrong complains were
not the direct result of the only state action alleged -- the denial of the CON.
Second, a misrepresentation exception to state action immunity must apply
under the circumstances presented by this case.
The majority finds the plaintiff failed to allege that its injuries were caused by
the hospital parties' alleged economic boycott and misrepresentations. Rather,
the majority asserts the alleged injuries were either directly related to the denial
of the CON, or the consequences thereof. Even accepting arguendo that state
action immunity applies to this case, some of the injuries alleged by Armstrong
are not the direct result of state action, but of the alleged misrepresentations and
conspiracy to boycott. After reciting throughout its complaint the boycott and
misrepresentations, the Surgical Center lists the following damages:
(1) Denial of the CON required to establish and operate [its ambulatory surgery

center].
(2) Denial of [its] ability to establish and operate [the proposed facility].
(3) Delay in securing the required CON, if ultimately granted, for the
establishment and operation of the [ambulatory surgery center].
(4) Increased costs, legal and otherwise, in pursuing Plaintiff's application for a
CON.
(5) Complete loss of the value of the CON, or a reduction in its value when and
if ultimately granted.
(6) Complete loss of the value of Plaintiff's [facility], or reduction of its value
when and if permitted to be operated.
(7) Complete loss of, or reduction in, the income and cash flow which Plaintiff
would have received from operation of the [center].
(8) Other related losses.
Because of the threatened boycott, damage claims 5, 6 and 7 would have
occurred even if Armstrong had received the coveted CON. The boycott of
plaintiff's surgical center by physicians who perform 90% of surgical
procedures in the relevant geographic market surely would serve to reduce the
value of the plaintiff's facility, either by the loss of business or the increase in
costs associated with attracting personnel to the facility. An agreement to
exclude the plaintiff from the relevant market by an economic boycott and
misrepresentations to the Board may result in antitrust injury. See, e.g., Brader
v. Allegheny Gen. Hosp., 64 F.3d 869, 877 (3d Cir. 1995) (finding complaint
adequately alleged antitrust injury where plaintiff alleged that defendants
unreasonably restricted his ability to practice medicine in the relevant market
and thus reduced competition). Therefore, I cannot agree with the majority's
conclusion that damage claims 5, 6 and 7 stemmed from denial of the CON.
The misrepresentation exception to Noerr-Pennington immunity should also
apply to state action immunity in the adjudicatory or administrative context.
Where misrepresentations and/or threats of illegal activity subvert the entire
decision making process, the direct cause of the injury is not the state action,
but rather the misrepresentations or threats which made a decision based on

accurate information impossible. See Woods Exploration & Producing Co., Inc.
v. Aluminum Co. of Am., 438 F.2d 1286, 1295 (5th Cir. 1971), cert. denied,
404 U.S. 1047, 92 S.Ct. 701,30 L.Ed.2d 736 (1972); see also Walker Process
Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 176 (1965) (holding
that procurement of patent by fraud on the United States Patent Office is
actionable under the Sherman Act, notwithstanding intervening state action of
granting the patent).
In the legislative arena, it is difficult to say that any particular action, no matter
how inappropriate, results in a particular legislation which causes injury.
However, in the administrative and judicial arenas, where agencies and courts
write reasoned opinions and make decisions based on information supplied by
the parties, they must depend on the parties to provide accurate information.4As
stated above, the Supreme Court has noted different standards apply to conduct
in administrative or adjudicatory processes. Allied Tube & Conduit Corp. v.
Indian Head, Inc., 486 U.S. 492, 500 (1988); California Motor Transp. Co. v.
Trucking Unlimited, 404 U.S. 508, 513 (1972); see supra, Part II.A. The
misrepresentations here, at the very least, largely influenced and very probably
dictated the outcome of the administrative process. Under that circumstance, it
is the misrepresentations, not the state action, which caused the alleged injuries
and dictated the Board's decision to deny the CON. 5
Because Parker and Noerr are complementary expressions of one principle of
antitrust law, a misrepresentation exception to Parker immunity is necessary to
effectuate the misrepresentation exception to Noerr-Pennington immunity.
Without an exception for those misrepresentations which have a pervasive
influence on administrative and adjudicative decisions, only those defendants
who most effectively subvert the state's process -- the ones whose improper
behavior results in favorable results for them from the state's administrative and
adjudicatory processes -- would be immune under state action immunity. This
would not only be a perverse result, but would entirely vitiate the
misrepresentation exception to Noerr-Pennington immunity.
This case is similar to Woods. In Woods, the defendants, partial owners of a
natural gas field, intentionally gave false information about their production
forecasts to the Texas Railroad Commission. 438 F.2d. at 1295. The
Commission used that information to determine allowable production. Id. The
court rejected "the facile conclusion that action by any public official
automatically confers exemption." Id. at 1294 (citations omitted). The court
held that state action immunity was not applicable because the
misrepresentations dictated the outcome: "defendants' conduct here can in no
way be said to have become merged with the action of the state since the

Commission neither was the real decision maker nor would have intended its
order to be based on false facts." Id. at 1295. Thus, the injury was not directly
caused by state action, but by the misrepresentations. Similarly in the instant
case, the Board relied on the Hospital parties' statements of subjective intent in
making its decision.
The majority believes that Woods is distinguishable from the present case
because the Texas Railroad Commission "was wholly dependent on the
antitrust defendants for the factual information on which it predicated its
allocation of production from a given field." [Majority opinion at 164 n.8]. The
court in Woods stated that the Railroad Commission had "no opportunity for
meaningful supervision or verification" of the defendants' statements and
therefore, the Commission "must rely on the truthfulness of the gas producers."
Id. at 1295. I do not find Woods to be so different from this case. Here, the
Department and Board had no way of ascertaining whether the Hospital truly
intended to complete its ASC. The Department and the Board were reasonable
in relying on the defendants' statements, which clearly implied that the Hospital
ASC would be completed and utilized. Further, the court in Woods did not
require that the government entity be "wholly" dependent on the information
provided by a defendant in order to deny state action immunity.
CONCLUSION
For the reasons stated above I would hold state action immunity does not
protect the defendants' actions. I also conclude there is a misrepresentation
exception to Noerr- Pennington immunity and that it applies in this case. My
view that material misrepresentations can vitiate Noerr- Pennington immunity
is supported by Cheminor, 168 F.3d at 124, and the case law of other circuits,
specifically the Fifth, Woods Exploration & Producing Co., Inc. v. Aluminum
Co. of America, 438 F.2d 1286, 1298 (5th Cir. 1971), Sixth, Potters Medical
Center v. City Hospital Ass'n, 800 F.2d 568, 580 (6th Cir. 1986), Ninth, Kottle
v. Northwest Kidney Centers, 146 F.3d 1056, 1060 (9th Cir. 1998), cert.
denied, 119 S.Ct. 1031 (1999), Eleventh, St. Joseph's Hospital v. Hospital
Corp. of America, 795 F.2d 948, 955 (11th Cir. 1986), and District of
Columbia, Whelan v. Abell , 48 F.3d 1247, 1254-55 (D.C. Cir. 1995). See also
Cheminor, 168 F.3d at 131 (Sloviter, J., dissenting) (citing Whelan and Kottle
for the proposition that PRE preserves a fraud exception to antitrust immunity).
The misrepresentations were material as there is an overpowering inference that
in denying the CON the Board accepted the Hospital parties' misrepresentation
that the Hospital would complete construction and operate a Hospital ASC.
These same misrepresentations caused the Board and Commonwealth Court to

pass upon the question of whether there was a need for two ASCs. Specifically,
the misrepresentations deprived the Board from passing upon the CON
application based upon the true facts -- six hospital rooms vis-a-vis the grant of
Armstrong's application for a CON, with concomitant cost savings of $400 per
case, thereby meeting the statutory goal of meeting medical needs in an
effective and cost efficient manner. We do not know, of course, whether the
Board would have granted or denied the CON application had its proceeding
not been so pervasively infected by the misrepresentations and threat of
boycott.
I respectfully and regrettably dissent for all of the reasons set forth above.
While respecting my colleagues differing views, I cannot agree with them. I
regret the majority result for two reasons. First, the majority opinion, in light of
Cheminor, has provided little, if any, guidance to the bar, future litigants or the
public. Second, to the extent the majority result provides guidance, it signals
that it is willing to immunize clear antitrust violations if they can be disguised,
however disingenuously, as petitioning activities without regard to whether
they are legitimate, and without distinguishing the arena in which they are
made.
NOTES:
1

In ruling on a motion to dismiss, the court must accept the well- pleaded facts
as true and resolve them in the light most favorable to the plaintiff. Trump
Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d
Cir. 1998); Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.
1997). In addition, the court may consider allegations contained in the
complaint, exhibits attached to the complaint, and matters of public record. See
City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 259 (1998);
Steinhardt Group, Inc. v. Citicorp, 126 F.3d 144, 145 (3d Cir. 1997).
Accordingly, this dissent, like the majority, considers both the Board's decision
and the Commonwealth Court decision.

The Court in Noerr stated:

It is inevitable, whenever an attempt is made to influence legislation by a
campaign of publicity, that an incidental effect of that campaign may be the
infliction of some direct injury upon the interests of the party against whom the
campaign is directed. And it seems equally inevitable that those conducting the
campaign would be aware of, and possibly even pleased by, the prospect of
such injury. To hold that the knowing infliction of such injury renders the
campaign itself illegal would thus be tantamount to outlawing all such
campaigns.

The staff physicians defendants eschewed reliance upon Parker state action
immunity, stating in the catch line of their argument, "Plaintiff's Attempt to
Reframe this Appeal in Terms of State Action Immunity is Misguided. . . ."
Individual Appellee's Br. at 20. Further, the Hospital dropped all reference to
state action immunity on appeal. Appellee's counsel made a deliberate,
reasoned choice not to rely on the theory, going so far as to state that "the
correctness of the District Court's decision . . . is not accurately analyzed under
state action immunity." Individual Appellee's Br. at 22. Thus, this is not a
circumstance where a litigant's counsel overlooked a theory. While this Court is
not limited by positions advanced by the litigants, caution is warranted where
capable counsel expressly disavow reliance on a defense. The majority
nonetheless has relied upon a state action defense explicitly and impliedly
discarded by the defendants.

It is for this reason that reliance by the majority on Sandy River Nursing Care
v. Aetna Casualty, 985 F.2d 1138, 1142 (1st Cir.), cert. denied, 510 U.S. 818
(1993), is misplaced. That case involved a decision by a legislature to change
the law in the face of a boycott. It is impossible to say that the boycott dictated
the outcome of the legislature's decision.

The majority's reliance on Massachusetts School of Law at Andover, Inc. v.

American Bar Ass'n, 107 F.3d 1026 (3d Cir.), cert. denied, 118 S.Ct. 264
(1997), also is misplaced. There, an unaccredited law school alleged the
American Bar Association engaged in anticompetitive conduct because
graduates from unaccredited schools could not sit for most state bar
examinations. This Court concluded the source of the injury was the action of
each of those states because "every state retains the final authority to set all the
bar admission rules." Id. at 1035. That case is distinguishable from the instant
case for two reasons. First, the state action in that case was non-adjudicative in
nature. Second, and more importantly, the plaintiff made no allegation that the
ABA knowingly made misrepresentations which were central to each state's
actions.